Question 1

Which of the following balance sheet equations is INCORRECT?
A)Assets - Liabilities = Shareholders' Equity
B)Assets = Liabilities + Shareholders' Equity
C)Assets - Current Liabilities = Long Term Liabilities
D)Assets - Current Liabilities = Long Term Liabilities + Shareholders' Equity

Accepted Answer

The equation in choice C is incorrect as it does not include shareholders' equity. A balance sheet must always balance, meaning that assets must equal the sum of liabilities and shareholders' equity.

Question 2

Use the following information for ECE incorporated:

-If ECE's stock is currently trading at $24.00 and ECE has 25 million shares outstanding,then ECE's market-to-book ratio is closest to:
A)0.24.
B)4.
C)6.
D)30.

Accepted Answer

Market-to-book ratio = Market value of equity / Book value of equityMarket value of equity = Number of shares outstanding * Current stock price= 25 million * $24.00 = $600 millionBook value of equity is not given, so we cannot calculate the exact market-to-book ratio. However, we can estimate it by assuming that the book value of equity is equal to the market value of equity. In this case, the market-to-book ratio would be:Market-to-book ratio = $600 million / $600 million = 1However, this is just an estimate. The actual market-to-book ratio could be higher or lower than 1.

Question 3

Zoe Dental Implements has gross property,plant and equipment totaling $1.4 million,depreciation expense this year of $200,000,and accumulated depreciation of $750,000.What is the book value of Zoe's property,plant and equipment?
A)$1.4 million
B)$1.2 million
C)$550,000
D)$650,000

Accepted Answer

Book value = Gross property, plant and equipment - Accumulated depreciation
Book value = $1.4 million - $750,000
Book value = $650,000

Question 4

Dustin's Donuts experienced a decrease in the value of the trademark of a company it acquired two years ago.This reduction in value results in:
A)an impairment charge.
B)depreciation expense.
C)an operating expense.
D)goodwill.

Accepted Answer

When there is a decrease in the value of an intangible asset like a trademark, it results in an impairment charge. The impairment charge reflects the decrease in the value of the asset and is recorded as an expense on the income statement. Depreciation expense is applicable to tangible assets and not intangible assets like trademarks. Operating expenses are costs incurred in the ordinary course of business, whereas the impairment charge is a one-time adjustment. Goodwill is the excess of the purchase price over the fair value of the net assets acquired in a business combination and is not related to the decrease in the value of the trademark.

Question 5

The statement of financial position is also known as the:
A)balance sheet.
B)income statement.
C)statement of cash flows.
D)statement of stockholder's equity.

Accepted Answer

The statement of financial position is another name for the balance sheet. The income statement shows a company's revenues and expenses over a period, the statement of cash flows shows the inflows and outflows of cash over a period, and the statement of stockholder's equity shows changes in the equity section of the balance sheet over a period.

Question 6

The firm's assets and liabilities at a given point in time are reported on the firm's:
A)income statement or statement of financial performance.
B)income statement or statement of financial position.
C)balance sheet or statement of financial performance.
D)balance sheet or statement of financial position.

Accepted Answer

The balance sheet or statement of financial position reports the firm's assets and liabilities at a given point in time. The income statement or statement of financial performance reports the firm's revenues and expenses over a period of time.

Question 7

The third party who checks annual financial statements to ensure that they are prepared according to GAAP and verifies that the information reported is reliable is the:
A)NYSE Enforcement Board.
B)Accounting Standards Board.
C)Securities and Exchange Commission (SEC).
D)auditor.

Accepted Answer

The auditor is responsible for checking annual financial statements to ensure they are prepared according to GAAP and verifying the information reported is reliable. The NYSE Enforcement Board and Accounting Standards Board are not involved in this process, and while the SEC may review financial statements, they do not provide the same level of verification as an independent auditor.

Question 8

What are the four financial statements that all public companies must produce?

Accepted Answer

The answer of What are the four financial statements that...

Question 9

A 30-year mortgage loan is a:
A)long-term liability.
B)current liability.
C)current asset.
D)long-term asset.

Accepted Answer

A 30-year mortgage loan is a long-term liability because the loan is expected to be paid off over a period of 30 years.

Question 10

U.S.public companies are required to file their annual financial statements with the U.S.Securities and Exchange Commission on which form?
A)10-A
B)10-K
C)10-Q
D)10-SEC

Accepted Answer

U.S. public companies are required to file their annual financial statements with the U.S. Securities and Exchange Commission on Form 10-K, which includes audited annual financial statements as well as other disclosures and financial information. Forms 10-A and 10-Q are also used by public companies but for different purposes such as registering securities offerings or quarterly financial reporting, respectively. Form 10-SEC does not exist.

Question 11

On the balance sheet,current maturities of long-term debt appear:
A)in the Stockholders' Equity section.
B)in the Operating Expenses section.
C)in the Current Assets section.
D)in the Current Liabilities section.

Accepted Answer

Current maturities of long-term debt are debts that are due within one year and are considered a current liability. Therefore, they appear in the Current Liabilities section of the balance sheet.

Question 12

Which of the following is an example of an intangible asset?
A)Brand names and trademarks
B)Patents
C)Customer relationships
D)All of the above are intangible assets.

Accepted Answer

Brand names and trademarks, patents, and customer relationships are all examples of intangible assets. Intangible assets are assets that do not have physical substance but have value to the company, such as intellectual property, brand recognition, and customer loyalty.

Question 13

Which of the following is NOT a financial statement that every public company is required to produce?
A)Income Statement
B)Statement of Sources and Uses of Cash
C)Balance Sheet
D)Statement of Stockholders' Equity

Accepted Answer

While the income statement, balance sheet, and statement of stockholders' equity are all required financial statements for public companies, the statement of sources and uses of cash is not. However, many companies still choose to produce a cash flow statement as it provides valuable insights into a company's liquidity and ability to generate cash.

Question 14

Zoe Dental Implements has gross property,plant and equipment totaling $1.4 million,depreciation expense this year of $200,000,and accumulated depreciation last year of $550,000.What is Zoe's net property,plant and equipment?
A)$1.4 million
B)$1.2 million
C)$550,000
D)$650,000

Accepted Answer

Net property, plant and equipment can be calculated as:
Gross property, plant and equipment - accumulated depreciation
= $1.4 million - ($550,000 + $200,000)
= $650,000. 
Therefore, the correct answer is D).

Question 15

Accounts payable is a:
A)long-term liability.
B)current asset.
C)long-term asset.
D)current liability.

Accepted Answer

Accounts payable is money owed by a company to its suppliers or vendors for goods or services received but not yet paid for. This is considered a current liability as it is typically due within one year.

Question 16

On the balance sheet,short-term debt appears:
A)in the Stockholders' Equity section.
B)in the Operating Expenses section.
C)in the Current Assets section.
D)in the Current Liabilities section.

Accepted Answer

Short-term debt is a liability that is due within one year or less, therefore it falls under the Current Liabilities section of the balance sheet.

Question 17

What is the role of an auditor in financial statement analysis?

Accepted Answer

The answer of What is the role of an auditor...

Question 18

Use the information for the question(s)below.
In November 2009,Perrigo Co.(PRGO)had a share price of $39.20.They had 91.33 million shares outstanding,a market-to-book ratio of 3.76.In addition,PRGO had $845.01 million in outstanding debt,$163.82 million in net income,and cash of $257.09 million.
-Perrigo's market capitalization is closest to:
A)$952.16 million.
B)$3580.14 million.
C)$4168.06 million.
D)$4425.15 million.

Accepted Answer

Market capitalization is calculated by multiplying the share price by the number of shares outstanding. For Perrigo Co., it is $39.20 * 91.33 million = $3580.14 million.

Question 19

Which of the following statements regarding the balance sheet is INCORRECT?
A)The balance sheet provides a snapshot of the firm's financial position at a given point in time.
B)The balance sheet lists the firm's assets and liabilities.
C)The balance sheet reports stockholders' equity on the right-hand side.
D)The balance sheet reports liabilities on the left-hand side.

Accepted Answer

The balance sheet reports assets on the left-hand side and liabilities and stockholders' equity on the right-hand side.

Question 20

Cash is a:
A)long-term asset.
B)current asset.
C)current liability.
D)long-term liability.

Accepted Answer

Cash is typically classified as a current asset because it is expected to be converted into cash within a year or less. This makes it different from long-term assets, such as property or equipment, which are expected to last for several years. Similarly, cash is not a liability, as it is not owed to anyone else.

Quiz 2: Introduction to Financial Statement Analysis

Which of the following balance sheet equations is INCORRECT?

Use the following information for ECE incorporated: -If ECE's stock is currently trading at $24.00 and ECE has 25 million shares outstanding,then ECE's market-to-book ratio is closest to:

Zoe Dental Implements has gross property,plant and equipment totaling $1.4 million,depreciation expense this year of $200,000,and accumulated depreciation of $750,000.What is the book value of Zoe's property,plant and equipment?

Dustin's Donuts experienced a decrease in the value of the trademark of a company it acquired two years ago.This reduction in value results in:

The statement of financial position is also known as the:

The firm's assets and liabilities at a given point in time are reported on the firm's:

The third party who checks annual financial statements to ensure that they are prepared according to GAAP and verifies that the information reported is reliable is the:

What are the four financial statements that all public companies must produce?

A 30-year mortgage loan is a:

U.S.public companies are required to file their annual financial statements with the U.S.Securities and Exchange Commission on which form?

On the balance sheet,current maturities of long-term debt appear:

Which of the following is an example of an intangible asset?

Which of the following is NOT a financial statement that every public company is required to produce?

Zoe Dental Implements has gross property,plant and equipment totaling $1.4 million,depreciation expense this year of $200,000,and accumulated depreciation last year of $550,000.What is Zoe's net property,plant and equipment?

Accounts payable is a:

On the balance sheet,short-term debt appears:

What is the role of an auditor in financial statement analysis?

Which of the following statements regarding the balance sheet is INCORRECT?

Cash is a: